Question

Meredith was transferred from Detroit to Dallas. She sold her Detroit residence (adjusted basis of $180,000) for a realized loss of $40,000 and purchased a new residence in Dallas for $225,000. What is Meredith's recognized gain or loss on the sale of the Detroit residence and her basis for the residence in Dallas?

A. Recognized Gain of $40,000; Basis for Dallas residence is $225,000

B. Recognized Loss of $40,000; Basis for Dallas residence is $225,000

C. Recognized Loss of $40,000; Basis for Dallas residence is $185,000

D. Recognized Gain of $40,000; Basis for Dallas residence is $185,000

Answer 1

Meredith's recognized loss is $0, because personal residence losses are not recognized for tax purposes. Her basis for the residence in Dallas is $225,000, which is the purchase price of the property.

Step-by-step explanation:

The question asks about the recognized gain or loss on the sale of Meredith's Detroit residence, and the adjusted basis of her new residence in Dallas. The sale of personal residence results in a loss which is not recognized for tax purposes. Therefore, Meredith's recognized loss is $0. The basis of Meredith's new residence in Dallas is the cost she paid for the property, which is $225,000.